Think Like a Financial Planner

Think Like a Financial Planner

From Certified Financial Planner Board of Standards, Inc.

The 2004 consumer survey conducted by Certified Financial Planner Board of Standards Inc. (CFP Board) shows that the public is split into three distinct segments when it comes to attitudes about financial planning:

“Worriers” – 39 percent of consumers act as their own financial planner despite their discomfort in the role and lack of confidence.

“Independents” – 33 percent of consumers prefer to make financial decisions without professional help.

“Help Wanteds” – 28 percent of consumers enthusiastically seek financial advice for long-term strategy from others.

With 72 percent of the public conducting their own financial planning, CFP Board believes that readers need to understand the financial planning process.

“Financial planning is something that many people can do on their own,” said Gary Diffendaffer, executive vice president of CFP Board. “But if you want to do it properly, it takes financial knowledge, time and self discipline.”

There are some widely-held myths about financial planning that are important to dispel before tackling your financial future.

  • Financial planning is NOT just for the rich. Even if you’re not the next Bill Gates, you will probably retire someday and you will pay taxes. It’s important to plan for life events with what you have, whether that’s a little or a lot.
  • Financial planning is NOT just investment strategy. True financial planning is soup-to-nuts recommendations and actions that encompass investment planning, retirement planning, tax planning, estate planning, insurance planning and employee benefits planning.

The Financial Planning Process Based on CFP Board’s Practice Standards for professional financial planners, the outline of the financial planning process below will help you align your financial planning with your life goals when dealing with your personal situation.

  1. Gathering Data, Including Goals You should decide what information is needed and then collect or develop the relevant data about your situation for the issues you have decided to deal with. You should define specific personal and financial goals and priorities, understand your time frame for results and define how you feel about taking risks.
  2. Analyzing and Evaluating Your Financial Status You should analyze your data and the assumptions you use to assess your current situation and determine to what extent you can meet your goals with your current course of action. This could include analyzing and projecting assets, liabilities, cash flow, current insurance coverage, investments or tax strategies.
  3. Developing Financial Planning Recommendations Research and develop various financial strategies that might meet your goals. Weigh your options and examine each strategy’s pros and cons, against your goals and priorities and then select the options that seem to fit best.
  4. Implementing the Financial Plan You should then take actions that you have determined would best meet your goals and priorities. You may need to coordinate implementation with other professionals such as attorneys, stockbrokers, or insurance agents depending on the actions you have determined are necessary.
  5. Monitoring the Financial Plan You should select a regular time at which time you will measure your progress. Be sure to review your situation and adjust the implemented strategies if needed.

Best Practices When Approaching Financial Planning

  • Set measurable goals.
  • Understand the effect each financial decision has on other financial issues.
  • Re-evaluate your financial plan periodically.
  • Start now – don’t assume financial planning is for when you get older.
  • Start with what you’ve got – don’t assume financial planning is only for the wealthy.
  • Don’t confuse financial planning with investing.
  • Don’t expect unrealistic returns on investments. Reaching for extraordinary returns is an easy way to get burned.
  • Look at the big picture – financial planning is more than just retirement planning or tax planning.
  • Don’t wait until a money crisis to begin financial planning.

If you would like information on CFP Board of Standards, this article or how to find a Certified Financial Planner (TM) in your area, please visit or call 1-888-CFP-MARK.